NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3
Accounting is a subject that demands regular practice to achieve perfect equation balance. It also requires a thorough comprehension of the Chapter specified concepts. This helps students solve many questions, including two combined concepts.
Chapter 3 in Accounting, Financial Statements of a Company, explains the generation of statements resulting from the accounting process of summarising and are thus the sources of information from which a company’s profitability and financial status can be derived. The Solutions created by the Extramarks subject experts help students extraordinarily prepare all the NCERT questions in depth and understand the concepts of this Chapter.
NCERT Solutions Class 12 Accountancy Company Accoounts and Analysis of Financial Statements Chapter 3 immensely helps students in their upcoming Board Examinations. In addition to these Solutions, students can use the Extramarks website to access several other study tools. NCERT books, CBSE revision notes, CBSE sample papers, CBSE previous year question papers, and other study materials are available to registered students.
Key Topics Covered In NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3
Mentioned below is a list of some of the major topics explained in Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3- Financial Statements of a Company:
| Financial Statements of a Company |
| Nature of Financial Statements |
| Types of Financial Statements |
| Uses and Importance of Financial Statements |
| Objectives of Financial Statements |
| Limitations of Financial Statements |
Let us now take a tour of Extramark’s detailed notes on each sub-topic in NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3- Financial Statements of a Company.
Financial Statements of a Company
Financial statements are written records that convey a trading concern or entity’s economic plans and conditions. Financial statements for a trading company typically include balance sheets, retained earnings, cash flows, and income statements. However, they may require further clarification based on the accounting foundation. Government businesses, accountants, and other authorities audit these accounts to ensure their accuracy and tax, financing, and investment purposes.
Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3 explains the Financial Statements of a Company in detail.
Nature of Financial Statements
The foundation for outlining general financial statements, which recognise the financial status as a specific date and the financial results achieved throughout a period, is the chronologically documented facts regarding occurrences transmitted in monetary terms for a particular time frame.
The nature of financial statements is dependent on the following factors:
- Recorded facts: To produce financial statements, we must first document certainty in monetary terms. We must explain account data such as cash, trade receivables, fixed assets, etc.
- Accounting conventions: Accounting Standards define certain norms relevant to the process of accounting. These norms must be abided by while preparing the financial statements.
- Postulates: In accounting, postulates are assumptions that we make.
- Personal judgements: In preparing financial statements, personal judgments and views play a significant role. As a result, while calculating depreciation, we must depend on our estimates.
Extramarks provide NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3, which gives students pointwise point explanations of the Chapter through detailed answers to the NCERT textbook questions. Browse through Extramarks for these handy solutions.
Types of Financial Statements
The financial impacts of transactions on the organisation are reflected in financial statements. Financial statements are prepared by corporate and non-profit organisations alike. It is an essential component of every organisation’s annual report.
An entity is obliged to prepare four different types of financial statements. Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3 presents these statements as follows:
Income Statements:
An organisation’s or business entity’s income statement is a financial statement that includes financial information on three key components:
- Revenues.
- Profit or Loss.
- Costs spent during the accounting period.
The following are the primary components of the income statement:
- Revenues: It refers to the current accounting period’s sales of products and services generated by the company. Both credit sales and cash can be used to generate revenue.
- Profit or Loss: The net income earned by subtracting costs from revenues is profit or loss. If revenues exceeds expenditures, it’s considered a profit, and if expenses exceed revenue, it will result in a loss. will result.
- Expenses: Expenses are the amount to be paid for doing business that an organisation incurs daily. Administrative costs, such as salary and depreciation, are E examples.
- Balance Sheet: The status of assets, liabilities, and equity after an accounting period is shown on a balance sheet. It’s also known as the a statement of financial position. A company’s net value is calculated by subtracting its liabilities from its assets. A balance sheet is the most applicable statement to give the relevant information to users of financial information seeking information on the company’s financial status. A balance sheet’s components include assets, liabilities, and equity.
- Assets: Assets are both legally and commercially held resources of the firm. Assets are divided into two categories: Current and n Non-current. A company’s current assets will be used within the current accounting period. Examples are cash, marketable securities, cash equivalents, and other investments. Non-current assets cannot be fully utilised in the current accounting period and must be spread out across many accounting periods. It comprises intangible and tangible assets like machinery, buildings, land, computers, and cars.
- Liability: Company liabilities are the commitments it owes to other firms or individuals. It covers things like interest, loans, and taxes. Current liabilities and non-current liabilities are the two types of obligations. Current obligations are set due within a year, and the organisation must pay the dues only during that accounting year. Non-current liabilities, on the other side, are debts that have a payback period greater than twelve months.
- Equity: The difference between assets and liabilities is referred to as equity. Retained profits and share capital are instances of equity. By subtracting assets from liabilities, equity may be computed.
- Statement of Cash Flow: The cash flow statement shows how money moves throughout a company. Cash inflows and outflows are included. Operating activities, investment activities, and financing activities are the three types of cash flow that may be categorised.
- Notes to Accounts: Notes to accounts, also known as notes to financial statements, are supplementary documents that encompass a company’s final arrangements. According to the law, notes must be supplied that include information on reserves, provisions, inventories, depreciation, share capital, etc.
The notes to accounts assist users of accounting information in comprehending the company’s present financial condition and forecasting its future performance. It assists auditors in determining if accounting policies are effectively executed and represented in financial statements while auditing financial statements.
Uses and Importance of Financial Statements
Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3 presents the uses of financial statement applications as stated below:
- Determine the financial position of the business: The primary purpose of financial statements is to convey information about a company’s financial situation at a given time. Various stakeholders utilise this data to make critical business choices.
- To obtain credit: Financial statements give potential lenders a picture of the firm. This information may be utilised to grant extra credit for corporate development or limit credit to begin the recovery process.
- Help investors in decision making: Financial statements provide all of the information potential investors need to determine how much they wish to put into the company. It can also assist investors in deciding on the price per share they want to invest in.
- Helps in policy-making: The financial statements assist the government in determining taxation and regulatory policies depending on how the business is conducted.
- Useful for stock traders: Financial statements provide stock traders with information about their financial status, allowing them to alter their prices accordingly.
Importance of Financial Statements:
The importance of financial statements is evident in their ability to persuade a variety of stakeholders, creditors, the general public, management, and others.
- Importance to Management: The increasing complexity of factors impacting commercial activities necessitates scientific and strategic access in the administration of modern trade concerns. The management team needs current, clear, and thorough financial data for the intentions. Financial statements let management understand the company counterpart’s growth, prospects, and place in the industry.
- Importance to Shareholders: In the case of businesses, management is separated from control. Shareholders are unable to participate in day-to-day operations. However, the results of these efforts should be presented to shareholders in the form of financial statements at the annual general meeting.
Objectives of Financial Statements:
The primary purpose of financial statements is to aid end-users in making decisions. The following are some of the objectives:
- Financial accounts depict the exact situation of an organisation’s liabilities and economic assets. External stakeholders, such as governments and investors, do not have access to this information.
- They aid in predicting the company’s capacity to produce profits. This information can help investors and shareholders make conscious financial decisions.
- The financial accounts of a company showcase how effective its management is, what is it’s. Profitability, and how effectively this business functions.
- They help readers understand the accounting strategies used in these financial statements. This makes it much easier to comprehend the declarations generally.
- These financial statements also involve information on the company’s cash flows. Creditors and investors may use this information to forecast the company’s financial needs and liquidity.
- Finally, financial accounts reveal how enterprises affect society. This is because the enterprise’s external factors impact its operations.
Limitations of Financial Statements:
Financial statements have limits that a user should know before relying on them heavily. Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3 explains Financial statements include the following limitations:
- Dependence on historical costs: The cost of transactions is recorded. This is important to know when looking at a balance sheet since the values of assets and liabilities might change over time. Some items, such as marketable securities, are customised to reflect changes in their market prices, but others, such as fixed assets, remain unchanged. As a result, the balance sheet may be unclear if a significant portion of the amount is based on initial costs.
- Biased: Financial statements result from documented facts, accounting concepts and conventions used, and accountants’ judgements in various settings. As a result, the results might be have biaseds, and the financial situation depicted in financial statements may not be realistic.
- Significant data missing: In many cases, T the balance statement does not show information about market losses and contract terminations, which substantially impact the firm.
- Aggregate Information: The average data in financial statements is not explained. As a result, they may not be able to help people make judgments.
- Assets may not realise: Some assets could not realise their reported worth if the firm is liquidated. In the balance sheet, assets are displayed at a somewhat discounted cost.
NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 3 Accounting for Share Capital NCERT Solutions
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Q.1 State the meaning of financial statements?
Ans. Financial statements are the basic and formal annual reports through which the corporate management communicates financial information to its owners and various external parties. These normally refer to the Balance Sheet and the Statement of Profit and Loss of a company.
Q.2 What are limitations of financial statements?
Ans. Following are the important limitations of financial statements:
- Financial statements are prepared on the basis of historical cost. Hence they do not reflect current situation.
- Vital information is missing in the financial statements like information relating to loss of markets, cessation of agreements, etc. which have vital bearing on the enterprise.
- Accounting is done on the basis of certain conventions. Some of the assets may not realise the stated values, as they are shown in the Balance Sheet at the unexpired cost.
Q.3 List any three objectives of financial statements?
Ans. The primary objective of financial statements is to assist the users in their decision making. The specific objectives include the following:
- To provide information about economic resources and obligations of a business.
- To provide information about the earning capacity of the business.
- To judge the effectiveness of management.
Q.4 State the importance of financial statements to:
- Shareholders.
- Creditors.
- Government.
- Investors.
Ans.
- Shareholders: They want to know about the profitability and future prospects of the business enterprise. The required information is available from the financial statements.
- Creditors: They want to ensure themselves, whether their funds are safe and secured and the business is capable of making payment of interest regularly and also return as per agreement.
- Government: Financial statements help government in determining tax liability. The government is also capable of ascertaining the economic development of the country.
- Investors: They would like to know, how far their previous investment has been safe and how much new investment will be safer and secured.
Q.5 How will you disclose the following items in the Balance Sheet of a company?
i. Current assets, Inventory
ii. Contingent liabilities and notes to accounts
iii. Shareholders’ funds, Reserve and surplus
iv. Fixed assets, intangible assets
v. Proposed dividend for the current year
vi. Non-current liabilities
vii. Arrears of dividend on cumulative preference shares
Ans.
i. Current assets are shown on the assets part of the balance sheet. Inventory is shown under the head Current Assets and sub head inventories.
ii. Contingent liability is not recorded in the books of accounts but is disclosed in the notes to accounts for the information of the users. It includes:
Claim against the company not acknowledge as debts;
Proposed Dividend (Current Year).
iii. Shareholders’ funds are shown in the Equity and Liabilities part of the balance sheet. Reserves and Surplus are shown under the head shareholders’ fund.
iv. Fixed Assets are shown under the head Non- Current Assets. Intangible Assets are shown under the head Non- Current Assets and Sub- heads Fixed Assets.
v. Proposed Dividend for the current year is treated as a Contingent Liability and shown in the notes to Accounts.
vi. Non-Current liabilities are shown in the Equity and Liabilities part of the Balance sheet.
vii. Arrears of dividend on cumulative preference shares are sown as ‘Commitments in Notes to Account’.
Q.6 Explain the nature of the financial statements.
Ans. The following points explain the nature of financial statements:
- Recorded Facts: Financial statements are prepared on the basis of facts in the form of cost data recorded in accounting books. The original cost or historical cost is the basis of recording transactions. The figures of various accounts such cash, bank, trade receivables, fixed assets etc. are taken as per the figures recorded in accounting books.
- Accounting Conventions: Certain accounting conventions are followed while preparing financial statements. The convention of valuing inventory at cost or market price whichever is lower is followed. The valuing of assets at cost less depreciation principle for balance sheet purpose is followed. The convention of materiality is followed in dealing in dealing with small items like pens, postage stamps, staplers etc. The use of accounting conventions makes financial statements comparable, simple and realistic.
- Postulates: Financial statements are prepared on certain basic assumptions known as postulates such as going concern postulate, money measurement postulate, realisation postulate etc. Going concern postulate assumes that the enterprise is treated as a going concern and exists for a longer period of time. While preparing statement of profit and loss the revenue is included in sales of the year in which the sale was undertaken even though the sale price may be received in the next year. The assumption is known as realisation postulate.
- Personal Judgements: Facts and figures presented through financial statements are based on personal opinion, estimates and judgements. The depreciation is provided taking into consideration the useful economic life of the asset. Provisions for doubtful debts are made on estimates and personal judgement. Personal opinion, judgements and estimates are made while preparing financial statements to avoid any possibility of over statement of assets and liabilities, income and expenditure, keeping in mind the convention of conservatism.
Q.7 Explain in detail about the significance of the financial statements.
Ans. The importance and significance of financial statements are as follows:
- Report on stewardship function: Financial statements report the performance of the management to the shareholders. The gaps between the management performance and ownership expectations can be understood with the help of financial statements.
- Basis for fiscal policies: The financial statements provide the basic input for industrial, taxation and other economic policies of the government.
- Basis for granting of credit: Credit granting institutions take decisions based on the financial performance of the business.
- Guide to the value of investment already made: Shareholders of the companies are interested in knowing the status, safety and return on their investment.
- Basis for prospective investors: Their prime concern in their investment decisions are security and liquidity of their investment with reasonable profitability. Financial statements help the investors to assess long-term and short-term solvency as well as the profitability of the concern.
- Aids trade associations in helping their members: Trade associations may analyse the financial statements for the purpose of providing service and protection to their members.
Q.8 Explain the limitations of financial statements.
Ans. Though utmost care is taken in the preparation of the financial statements and provide detailed information to the users, they suffer from the following limitations:
- Do not reflect current situation: The items recorded in the financial statements reflect their original cost i.e. the cost at which they were acquired. Financial statements also fail to record the inflation effect.
- No qualitative information: Financial statements contain only monetary information but not qualitative information like current economic environment, industrial relation, labour relation, quality of management etc.
- Biased: Financial statements are based on the personal judgements regarding the use of the methods for charging depreciation, amount of provision for doubtful debts, methods of valuation of inventory etc.
- Only Summary: Financial statements show aggregate information but not detailed information. Hence they may not be of great help in decision making.
- Some important information missing: Financial statements do not disclose information relating to loss of markets, and cessation of agreement, which have vital impact on the business.
Q.9 Prepare the format of statement of profit and loss and explain its items up to the ascertainment of profit before tax.
Ans. Form of Statement of Profit and Loss
| Particulars | Note No. | Figures at the end of current reporting period | Figures at the end of previous reporting period |
| I. Revenue from operations | |||
| II. Other income | |||
| III. Total revenue | |||
| IV. Expenses | |||
| Cost of materials consumed | |||
| Purchases of stock-in-trade | |||
| Changes in inventories of | |||
| Finished goods | |||
| Work-in-progress | |||
| Stock-in-trade | |||
| Employees benefit expenses | |||
| Finance costs | |||
| Depreciation and amortisation expenses | |||
| Other expenses | |||
| Total expenses | |||
| V. Profit before tax
(III – IV) |
Revenue from operations: It includes Net sales, sale of scrap and revenue from services.
Other income: It includes rent received, interest and dividend received and profit on sale of fixed assets or investment.
Cost of materials consumed: It is equal to opening inventory of materials plus net purchases minus closing inventory of materials.
Changes in inventories of finished goods, work-in-progress and stock-in-trade: It is equal to opening inventory minus closing inventory.
Employee benefit expenses: It includes the following:
- Wages
- Salaries
- Staff welfare expenses
- Contribution to Provident Fund and other staff welfare funds
Depreciation and amortisation expenses: Depreciation refers to amount of tangible assets written off. Amortisation refers to amount of intangible assets written off.
Finance costs: It includes the following:
- Amount of interest paid by the company on its borrowings.
- Other borrowing cost which includes discount on issue of debentures and premium payable on redemption of debentures etc.
Other expenses: It includes expenses other than the above six heads of expense. These could be telephone expenses, rent and taxes, selling and distribution expenses, loss on sale of fixed assets or investments, bad debts, cash discount allowed etc.
Q.10 Prepare the format of balance sheet and explain the various elements of balance sheet.
Ans. PART I
Form of Balance Sheet.
Name of the Company……………………..
Balance Sheet as at …………………………
| Particulars | Note No. | Figures as at the end of current reporting period |
Figures as at the end of previous reporting period |
| I. EQUITY AND LIABILITIES | |||
| (1) Shareholders’ Funds | |||
| (a) Share Capital | |||
| (b) Reserves and Surplus | |||
| (c) Money received against
share warrants |
|||
| (2) Share Application
Money Pending Allotment |
|||
| (3) Non-Current Liabilities | |||
| (a) Long term borrowings | |||
| (b) Deferred tax liabilities (Net) | |||
| (c) Other long term liabilities | |||
| (d) Long term provisions | |||
| (4) Current Liabilities | |||
| (a) Short term borrowings | |||
| (b) Trade payables | |||
| (c) Other current liabilities | |||
| (d)Short term provisions | |||
| Total | |||
| II. ASSETS | |||
| (1) Non Current Assets | |||
| (a) Fixed Assets | |||
| (i) Tangible Assets | |||
| (ii) Intangible Assets | |||
| (iii) Capital work in
progress |
|||
| (iv) Intangible assets under
development |
|||
| (b) Non-current investments | |||
| (c) Deferred tax assets (net) | |||
| (d) Long term loans and
advances |
|||
| (e) Other non-current assets | |||
| (2) Current Assets | |||
| (a) Current investments | |||
| (b) Inventories | |||
| (c) Trade receivables | |||
| (d) Cash and cash equivalents | |||
| (e) Short term loans and
advances |
|||
| (f) Other current assets | |||
| Total |
Equity and Liabilities: It is divided into two parts – liability towards owners, i.e., equity, and liability towards outsiders.
Share Capital: It shows the details of the authorised capital, issued capital and paid-up capital in terms of the number and amount of each type of share, and also the amount of calls in arrears and the forfeited shares.
Reserves and Surplus includes Capital Reserves, Capital Redemption Reserve, Securities Premium Reserve, Debenture Redemption Reserve, Share Options Outstanding Account, Other Reserves (specify the nature and purpose of each reserve and the amount in respect thereof), Surplus, i.e., balance in the Statement of Profit and Loss after appropriations such as dividend, bonus shares etc.
Money received against share warrants: It is a part of the shareholders’ funds. These are instruments issued by a company that are converted into shares at a pre determined price, at a later date.
Non-current liabilities are those liabilities which are not due for payment within the next 12 months.
Current liabilities are those liabilities which are due for payment within the next 12 months.
Assets: These are broadly classified into two types, i.e., non-current assets and current assets.
Non-current Assets: These are assets which are not held with the purpose of selling or converting them into cash, but to improve the earning capacity of a business.
Current Assets: It includes current investments, inventories, trade receivables, cash and cash equivalents, short term loans and advances and other current assets.
Q.11 Explain how financial statements are useful to the various parties who are interested in the affairs of an undertaking?
PART I
Form of Balance Sheet.
Name of the Company……………………..
Balance Sheet as at …………………………
| Particulars | Note No. | Figures as at the end of current reporting period |
Figures as at the end of previous reporting period |
| I. EQUITY AND LIABILITIES | |||
| (1) Shareholders’ Funds | |||
| (a) Share Capital | |||
| (b) Reserves and Surplus | |||
| (c) Money received against
share warrants |
|||
| (2) Share Application
Money Pending Allotment |
|||
| (3) Non-Current Liabilities | |||
| (a) Long term borrowings | |||
| (b) Deferred tax liabilities (Net) | |||
| (c) Other long term liabilities | |||
| (d) Long term provisions | |||
| (4) Current Liabilities | |||
| (a) Short term borrowings | |||
| (b) Trade payables | |||
| (c) Other current liabilities | |||
| (d)Short term provisions | |||
| Total | |||
| II. ASSETS | |||
| (1) Non Current Assets | |||
| (a) Fixed Assets | |||
| (i) Tangible Assets | |||
| (ii) Intangible Assets | |||
| (iii) Capital work in
progress |
|||
| (iv) Intangible assets under
development |
|||
| (b) Non-current investments | |||
| (c) Deferred tax assets (net) | |||
| (d) Long term loans and
advances |
|||
| (e) Other non-current assets | |||
| (2) Current Assets | |||
| (a) Current investments | |||
| (b) Inventories | |||
| (c) Trade receivables | |||
| (d) Cash and cash equivalents | |||
| (e) Short term loans and
advances |
|||
| (f) Other current assets | |||
| Total |
Equity and Liabilities: It is divided into two parts – liability towards owners, i.e., equity, and liability towards outsiders.
Share Capital: It shows the details of the authorised capital, issued capital and paid-up capital in terms of the number and amount of each type of share, and also the amount of calls in arrears and the forfeited shares.
Reserves and Surplus includes Capital Reserves, Capital Redemption Reserve, Securities Premium Reserve, Debenture Redemption Reserve, Share Options Outstanding Account, Other Reserves (specify the nature and purpose of each reserve and the amount in respect thereof), Surplus, i.e., balance in the Statement of Profit and Loss after appropriations such as dividend, bonus shares etc.
Money received against share warrants: It is a part of the shareholders’ funds. These are instruments issued by a company that are converted into shares at a pre determined price, at a later date.
Non-current liabilities are those liabilities which are not due for payment within the next 12 months.
Current liabilities are those liabilities which are due for payment within the next 12 months.
Assets: These are broadly classified into two types, i.e., non-current assets and current assets.
Non-current Assets: These are assets which are not held with the purpose of selling or converting them into cash, but to improve the earning capacity of a business.
Current Assets: It includes current investments, inventories, trade receivables, cash and cash equivalents, short term loans and advances and other current assets.
Q.12 Financial statements reflect a combination of recorded facts, accounting conventions and personal judgements discuss.
Form of Statement of Profit and Loss
| Particulars | Note No. | Figures at the end of current reporting period | Figures at the end of previous reporting period |
| I. Revenue from operations | |||
| II. Other income | |||
| III. Total revenue | |||
| IV. Expenses | |||
| Cost of materials consumed | |||
| Purchases of stock-in-trade | |||
| Changes in inventories of | |||
| Finished goods | |||
| Work-in-progress | |||
| Stock-in-trade | |||
| Employees benefit expenses | |||
| Finance costs | |||
| Depreciation and amortisation expenses | |||
| Other expenses | |||
| Total expenses | |||
| V. Profit before tax
(III – IV) |
Revenue from operations: It includes Net sales, sale of scrap and revenue from services.
Other income: It includes rent received, interest and dividend received and profit on sale of fixed assets or investment.
Cost of materials consumed: It is equal to opening inventory of materials plus net purchases minus closing inventory of materials.
Changes in inventories of finished goods, work-in-progress and stock-in-trade: It is equal to opening inventory minus closing inventory.
Employee benefit expenses: It includes the following:
- Wages
- Salaries
- Staff welfare expenses
- Contribution to Provident Fund and other staff welfare funds
Depreciation and amortisation expenses: Depreciation refers to amount of tangible assets written off. Amortisation refers to amount of intangible assets written off.
Finance costs: It includes the following:
- Amount of interest paid by the company on its borrowings.
- Other borrowing cost which includes discount on issue of debentures and premium payable on redemption of debentures etc.
Other expenses: It includes expenses other than the above six heads of expense. These could be telephone expenses, rent and taxes, selling and distribution expenses, loss on sale of fixed assets or investments, bad debts, cash discount allowed etc.
Q.13 Explain the process of preparing income statement and balance sheet.
Though utmost care is taken in the preparation of the financial statements and provide detailed information to the users, they suffer from the following limitations:
- Do not reflect current situation: The items recorded in the financial statements reflect their original cost i.e. the cost at which they were acquired. Financial statements also fail to record the inflation effect.
- No qualitative information: Financial statements contain only monetary information but not qualitative information like current economic environment, industrial relation, labour relation, quality of management etc.
- Biased: Financial statements are based on the personal judgements regarding the use of the methods for charging depreciation, amount of provision for doubtful debts, methods of valuation of inventory etc.
- Only Summary: Financial statements show aggregate information but not detailed information. Hence they may not be of great help in decision making.
- Some important information missing: Financial statements do not disclose information relating to loss of markets, and cessation of agreement, which have vital impact on the business.
Q.14 Show the following items in the balance sheet as per the provisions of the Companies Act, 2013 in Schedule III:
| Particulars | ₹ | Particulars | ₹ |
| Preliminary Expenses | 2,40,000 | Goodwill | 30,000 |
| Discount on issue of shares | 20,000 | Loose tools | 12,000 |
| 10% Debentures | 2,00,000 | Motor Vehicles | 4,75,000 |
| Stock in trade | 1,40,000 | Provision for tax | 16,000 |
| Cash at bank | 1,35,000 | ||
| Bills receivable | 1,20,000 |
Ans. Balance Sheet (Extract)
| Particulars | Note no. | ₹ |
| I. Equity and Liabilities | ||
| 1. Non-current Liabilities | ||
| Long-term Borrowings | 1 | 2,00,000 |
| 2. Current Liabilities | ||
| a. Short-term Provisions | 2 | 16,000 |
| II Assets | ||
| 1. Non-Current Assets | ||
| a. Fixed Assets | ||
| Tangible Assets | 3 | 4,75,000 |
| Intangible Assets | 4 | 30,000 |
| b. Other Non-Current Assets | ||
| 2. Current Assets | ||
| a. Inventories | 5 | 1,52,000 |
| b. Bill receivables | 6 | 1,20,000 |
| c. Cash and Cash Equivalents | 7 | 1,35,000 |
| d. other Current Assets | 8 | 2,60,000 |
Notes to Accounts:
| Particulars | ₹ | ||
| 1. Long-term Borrowings | |||
| 10% debentures | 2,00,000 | ||
| 2. Short-term Provisions | |||
| Provision for taxation | 16,000 | ||
| 3. Fixed Assets | |||
| Tangible Assets | |||
| Motor Vehicles | 4,75,000 | ||
| Intangible Assets | |||
| Goodwill | 30,000 | ||
| 4. Other Non-current Assets | |||
| Preliminary expenses | 2,40,000 | ||
| Disc. on issue of debentures | 20,000 | 2,60,000 | |
| 5. Inventories | |||
| Stock-in trade | 1,40,000 | ||
| Loose tools | 12,000 | 1,52,000 | |
| 6. Trade Receivables | |||
| Bills Receivables | 1,20,000 | ||
| 7. Cash and Cash Equivalents | |||
| Cash at Bank | 1,35,000 | ||
| 8. Other Current Assets | |||
| Preliminary Expenses 2,40,000 | |||
| Discount on Issue of Shares 20,000 | 2,60,000 | ||
| 2,60,000 | |||
Q.15 On 1st April, 2017, Jumbo Ltd. issued 10,000; 12% debentures of ₹100 each a discount of 20%, redeemable after 5 years. The company decided to write-off discount on issue of such debentures on March 31, 2018. Show the items in the balance sheet of the company immediately after the issue of these debentures.
Ans. Balance Sheet as at….
| Particulars | Note no. | ₹ |
| I. Equity and Liabilities | ||
| 1. Non-current Liabilities | ||
| Long-term Borrowings | 1 | 10,00,000 |
| Total | 10,00,000 | |
| II Assets | ||
| Current Assets | ||
| 1. Cash and Cash Equivalents | 3 | 8,00,000 |
| 2. Other Current Assets | 4 | 2,00,000 |
| Total | 10,00,000 |
Notes to Accounts:
| Particulars | ₹ |
| 1. Long-term Borrowings | |
| 10,000 12% debentures of ₹100 each | 10,00,000 |
| 2. Cash and Cash Equivalents | |
| Cash at Bank | 8,00,000 |
| 3. Other Current Assets | |
| Disc. on issue of debentures (unamortised) | 2,00,000 |
| (To be written off within 12 months from the date of Balance Sheet) |
Q.16 From the following information, prepare the balance sheet of Gitanjali Ltd.
- Inventories ₹14,00,000;
- Equity share capital ₹20,00,000;
- Plant and Machinery ₹10,00,000;
- Preference share capital ₹12,00,000;
- Debenture Redemption Reserve ₹6,00,000;
- Outstanding expenses ₹3,00,000;
- Proposed dividend ₹5,00,000;
- Land & Building ₹20,00,000;
- Current Investment ₹8,00,000;
- Cash equivalent ₹10,00,000;
- Short term loan from Zaveri Ltd (a subsidiary company of Twilight Ltd) ₹4,00,000;
- Public Deposits ₹12,00,000.
Ans. Balance Sheet
| Particulars | Note no. | ₹ |
| I. Equity and Liabilities | ||
| 1. Shareholders’ Funds | ||
| (a) Share Capital | 1 | 32,00,000 |
| (b) Reserves and Surplus | 2 | 6,00,000 |
| 2. Non-current Liabilities | ||
| (a) Long-term Borrowings | 3 | 12,00,000 |
| 3. Current Liabilities | ||
| (a) Short-term Borrowings | 4 | 4,00,000 |
| (b) Other Current Liabilities | 5 | 3,00,000 |
| (c) Short-term Provisions | 6 | 5,00,000 |
| Total | 62,00,000 | |
| II Assets | ||
| 1. Non-current Assets | ||
| (a) Fixed Assets | ||
| Tangible Assets | 7 | 30,00,000 |
| 2. Current Assets | ||
| (a) Current Investments | 8 | 8,00,000 |
| (b) Inventories | 9 | 14,00,000 |
| (c) Cash and Cash Equivalents | 10 | 10,00,000 |
| Total | 62,00,000 |
Notes to Accounts:
| Particulars | ₹ | ||
| 1. Share Capital | |||
| Equity share capital | 20,00,000 | ||
| Preference share capital | 12,00,000 | 32,00,000 | |
| 2. Reserves and Surplus | |||
| Debenture Redemption Reserve | 6,00,000 | ||
| 3. Non-current Liabilities | |||
| Long-term Borrowings | |||
| Public Deposits | 12,00,000 | ||
| 4. Short-term Borrowings | |||
| Short term loan from Zaveri Ltd (a subsidiary company of Twilight Ltd) | 4,00,000 | ||
| 5. Other Current Liabilities | |||
| Outstanding expenses | 3,00,000 | ||
| 6. Short-term Provisions | |||
| Proposed dividend | 5,00,000 | ||
| 7. Tangible Assets | |||
| Land & Building | 20,00,000 | ||
| Plant and Machinery | 10,00,000 | 30,00,000 | |
| 8. Current Investment | 8,00,000 | ||
| 9. Inventories | 14,00,000 | ||
| 10. Cash and Cash Equivalents | 10,00,000 | ||
Q.17 From the following information prepare the balance sheet of Jam Ltd.
- Inventories ₹7,00,000;
- Equity share capital ₹16,00,000;
- Plant and Machinery ₹8,00,000;
- 8% Preference share capital ₹6,00,000;
- General reserve ₹6,00,000;
- Bills payable ₹1,50,000;
- Provision for taxation ₹2,50,000;
- Land & Building ₹16,00,000;
- Non-current Investment ₹10,00,000;
- Cash at Bank ₹5,00,000;
- Creditors ₹2,00,000;
- 12% Debentures ₹12,00,000;
Ans. Balance Sheet as on….
| Particulars | Note no. | ₹ |
| I. Equity and Liabilities | ||
| 1. Shareholders’ Funds | ||
| (a) Share Capital | 1 | 22,00,000 |
| (b) Reserves and Surplus | 2 | 6,00,000 |
| 2. Non-current Liabilities | ||
| (a) Long-term Borrowings | 3 | 12,00,000 |
| 3. Current Liabilities | ||
| (a) Trade Payables | 4 | 3,50,000 |
| (b) Short-term Provisions | 5 | 2,50,000 |
| Total | 46,00,000 | |
| II Assets | ||
| 1. Non-current Assets | ||
| (a) Fixed Assets | ||
| Tangible Assets | 6 | 24,00,000 |
| (b) Non-current Investment | 7 | 10,00,000 |
| 2. Current Assets | ||
| (a) Inventories | 8 | 7,00,000 |
| (b) Cash and Cash Equivalents | 9 | 5,00,000 |
| Total | 46,00,000 |
Notes to Accounts:
| Particulars | ₹ | ||
| 1. Share Capital | |||
| Equity share capital | 16,00,000 | ||
| 8% Preference share capital | 6,00,000 | 22,00,000 | |
| 2. Reserves and Surplus | |||
| General Reserve | 6,00,000 | ||
| 3. Non-current Liabilities | |||
| Long-term Borrowings | |||
| 12% Debentures | 12,00,000 | ||
| 4. Trade Payables | |||
| Sundry Creditors | 2,00,000 | ||
| Bills Payable | 1,50,000 | 3,50,000 | |
| 5. Short-term Provision | |||
| Provision for tax | 2,50,000 | ||
| 6. Tangible Assets | |||
| Land & Building | 16,00,000 | ||
| Plant and Machinery | 8,00,000 | 24,00,000 | |
| 7. Non-current Investment | 10,00,000 | ||
| 8. Inventories | 7,00,000 | ||
| 9. Cash and Cash Equivalents | |||
| Cash at Bank | 5,00,000 | ||
Q.18 Prepare the balance sheet of Jyoti Ltd, as at March 31, 2017 from the following information
- Building ₹10,00,000;
- Investments in the shares of Metro Tyres Ltd. ₹3,00,000;
- Stores and Spares ₹1,00,000;
- Statement of Profit and Loss (Dr.) ₹90,000;
- 50,000 equity shares of ₹20 each fully paid-up;
- Capital Redemption Reserve ₹1,00,000;
- 10% Debentures ₹3,00,000;
- Unpaid dividends ₹90,000;
- Share options outstanding account ₹10,000.
- Other current asset ₹10,000.
Ans. Balance Sheet
| Particulars | Note no. | ₹ |
| I. Equity and Liabilities | ||
| 1. Shareholders’ Funds | ||
| (a) Share Capital | 1 | 10,00,000 |
| (b) Reserves and Surplus | 2 | 10,000 |
| 2. Non-current Liabilities | ||
| (a) Long-term Borrowings | 3 | 3,00,000 |
| 3. Current Liabilities | ||
| (a) Other Current Liabilities | 4 | 1,00,000 |
| Total | 14,10,000 | |
| II Assets | ||
| 1. Non-current Assets | ||
| (a) Fixed Assets | ||
| Tangible Assets | 5 | 10,00,000 |
| (b) Non-current Investment | 6 | 3,00,000 |
| 2. Current Assets | ||
| (a) Inventories | 7 | 1,00,000 |
| (b) Other Current Assets | 8 | 10,000 |
| Total | 14,10,000 |
Notes to Accounts:
| Particulars | ₹ | ||||
| 1. Share Capital | |||||
| Equity share capital | 10,00,000 | ||||
| 50,000 equity shares of ₹20 each fully paid-up | |||||
| 2. Reserves and Surplus | |||||
| Capital Redemption Reserve | 1,00,000 | ||||
| Statement of P&L (Dr.) | (90,000) | 10,000 | |||
| Shares Options Outstanding Account | 10,000 | ||||
| 3. Non-current Liabilities | |||||
| Long-term Borrowings | |||||
| 10% Debentures | 3,00,000 | ||||
| 4. Other Current Liabilities | |||||
| Unpaid dividends | 90,000 | ||||
| Share Option Outstanding | 10,000 | 1,00,000 | |||
| 5. Tangible Assets | |||||
| Building | 10,00,000 | ||||
| 6. Non-current Investment | |||||
| Investments in the shares of Metro Tyres Ltd. | 3,00,000 | ||||
| 7. Inventories | |||||
| Stores and Spares | 1,00,000 | ||||
| 8. Other Current Assets | 10,000 | ||||
Note: There is a misprint in the book. The number of equity shares issued must be 50,000 so that both the sides of the Balance Sheet stand equal.
Q.19 Brinda Ltd. has furnished the following information:
25,000, 10% debentures of ₹100 each;
Bank loan of ₹10,00,000 repayable after 5 years;
Interest on debentures is yet to be paid.
Show the above items in the balance sheet of the company as at March 31, 2017.
Ans. Balance Sheet (Extract)
| Particulars | Note no. | ₹ |
| I. Equity and Liabilities | ||
| 1. Non-current Liabilities | ||
| Long-term Borrowings | 1 | 35,00,000 |
| 2. Current Liabilities | ||
| Other Current Liabilities | 2 | 2,50,000 |
Notes to Accounts:
| Particulars | ₹ |
| 1. Long-term Borrowings | |
| 25,000 10% debentures of ₹100 each | 25,00,000 |
| Bank loan | 10,00,000 |
| 35,00,000 | |
| 2. Other Current Liabilities | |
| Interest accrued and due on debentures | 2,50,000 |
Q.20 Prepare a balance sheet of Black Swan Ltd. as at March 31, 2017 from the following information:
| Particulars | ₹ |
| General Reserve | 3,000 |
| 10% Debentures | 3,000 |
| Balance in Statement of P & L | 1,200 |
| Depreciation on fixed assets | 700 |
| Gross Block | 9,000 |
| Current liabilities | 2,500 |
| Preliminary expenses | 300 |
| 6% Preference Share Capital | 5,000 |
| Cash & Cash Equivalents | 6,100 |
Ans.
Balance Sheet
| Particulars | Note no. | ₹ |
| I. Equity and Liabilities | ||
| 1. Shareholders’ Funds | ||
| (a) Share Capital | 1 | 5,000 |
| (b) Reserves and Surplus | 2 | 4,200 |
| 2. Non-current Liabilities | ||
| (a) Long-term Borrowings | 3 | 3,000 |
| 3. Current Liabilities | ||
| (a) Other Current Liabilities | 4 | 2,500 |
| Total | 14,700 | |
| II Assets | ||
| 1. Non-current Assets | ||
| (a) Fixed Assets | ||
| Tangible Assets | 5 | 8,300 |
| 2. Current Assets | ||
| (a) Cash and Cash Equivalents | 6 | 6,100 |
| (b) Other Current Assets | 7 | 300 |
| Total | 14,700 |
Notes to Accounts:
| Particulars | ₹ | |||
| 1. Share Capital | ||||
| 6% Preference Share Capital | 5,000 | |||
| 2. Reserves and Surplus | ||||
| General Reserve | 3,000 | |||
| Balance in Statement of P & L | 1,200 | 4,200 | ||
| 3. Non-current Liabilities | ||||
| Long-term Borrowings | ||||
| 10% Debentures | 3,000 | |||
| 4. Other Current Liabilities | ||||
| Current Liabilities | 2,500 | |||
| 5. Tangible Assets | ||||
| Gross Block | 9,000 | |||
| Less: Depreciation | 700 | 8,300 | ||
| 6. Cash and Cash Equivalents | 6,100 | |||
| 7. Other Current Assets | ||||
| Preliminary Expenses | 300 | |||
FAQs (Frequently Asked Questions)
1. NCERT Solutions Class 12 Accountancy Part 2 Chapter 3 – Financial Statements of a Company consists of how many questions?
There are a total of 18 questions, including ones that explain the fundamentals and balance sheets and mathematical problems.
2. What is the ratio of sacrifice? According to Chapter 3 of Class 12 Accountancy, why is it calculated?
The accounting term for the portion of the profit-sharing ratio that current partners surrender when a new partner enters the company, partnership, or organisation is the sacrificing ratio. The sacrificing ratio is calculated using a simple formula: the difference between the previous and new profit ratios equals the sacrificing ratio.
